What is USD Coin (USDC)？
USD Coin (USDC) is a cryptocurrency designed to maintain a value pegged to the U.S. dollar. As a stablecoin, each USDC is intended to always hold the equivalent value of one dollar.
Currently, USD Coin stands as the second-largest stablecoin in the market, boasting a market capitalization of $73 billion. Together with Tether (USDT), USD Coin represents 80% of the global stablecoin market’s capitalization.
How Does USD Coin Work?
USD Coin (USDC) is supported by tangible assets, often referred to as a fiat-collateralized stablecoin. This type of currency, as implied by its name, is backed by a sovereign currency like the U.S. dollar or the British pound.
To uphold the stability of USDC at a value of $1, it is collateralized by cash and short-term U.S. government bonds. For every USDC token in circulation, $1 is maintained in collateral.
When investors acquire USD Coin, they anticipate its value to remain equivalent to one dollar consistently. Why would one possess USDC? The primary use case involves acquiring USDC, storing it on an exchange or within a cryptocurrency wallet, and subsequently using it to facilitate the purchase of other cryptocurrencies.
Understanding USD Coin
Launched in 2018 by Centre, a consortium established by Circle and Coinbase, USD Coin (USDC) was introduced as a regulated stablecoin operating on blockchain technology.
Stablecoins, such as USDC, are a category of cryptocurrency designed to maintain a fixed value relative to another asset, be it a fiat currency, commodity, or even another cryptocurrency. The primary objective of USD Coin (USDC) is to uphold a one-to-one parity with the U.S. dollar.
Unlike cryptocurrencies like Bitcoin (BTC) or Ethereum (ETH), which experience price fluctuations, stablecoins like USD Coin (USDC) serve a distinct purpose. Instead of offering an asset that potentially appreciates over time, their main function is to serve as a dependable store of value.
For instance, as of the current writing, the year-to-date return on Bitcoin stands at -35%. In contrast, the value of USDC has remained remarkably stable throughout the year. Its lowest trading price in the past 52 weeks was $0.995, which is only marginally below its one-dollar peg.
Is USD Coin a Good Investment?
Acquiring USD Coin doesn’t yield returns for investors, as its primary function is to serve as a stablecoin. Therefore, the value in holding this cryptocurrency lies more in its utility, rather than potential price appreciation.
Investing in USDC resembles storing U.S. dollars under your mattress; the investment won’t accrue value beyond the equivalent cash.
Nevertheless, there are avenues to generate profit from USDC. By lending USDC to other cryptocurrency investors, you can earn passive income. Certain lending programs offer interest for lending your USDC. However, it’s essential to acknowledge that no investment is entirely risk-free, and there is inherent risk in lending to borrowers to gain a yield on USDC.
Once more, the primary objective of USD Coin is to facilitate faster and more cost-effective currency transfers for businesses and individuals. This is achieved by bypassing traditional intermediaries like banks and offering a stable cryptocurrency option.
USDC Offers Transparency
Steve Bumbera, the Chief Operating Officer of Many Worlds Token, highlights USD Coin’s (USDC) reputation as a safer stablecoin due to its transparent collateral reserves.
“Centre collaborates with auditors and adheres to government regulations, ensuring a transparent and detailed account of the reserves supporting the U.S. dollar peg,” Bumbera explains.
Monthly reports detailing these reserve balances, along with the circulating USDC supply and its corresponding value in U.S. dollars, are readily accessible. Grant Thornton, an auditing firm, releases attestations for USDC. In May 2022, Circle announced its commitment to providing weekly attestation reports, further enhancing trust in USDC by revealing the exact amount of funds backing the stablecoin.
When purchasing 1 USDC, a new token is minted, while selling 1 USDC for fiat currency results in the “burning” of the coin during the transaction.
Similar to the U.S. dollar, USDC is divisible. It can be held down to 0.000001 USDC, although Coinbase imposes a withdrawal limit of 0.001 USDC. Additionally, withdrawals exceeding 15,000,000 USDC cannot be processed at once.
Marco Manoppo, the Research Director at Digital Asset Research, emphasizes that digital asset market participants can access or acquire USDC through trading USDC-denominated pairs on exchanges or directly engaging with USDC’s issuer.
USDC provides liquidity to crypto markets and is supported as an asset on various major blockchain networks, including Ethereum, Algorand (ALGO), Solana (SOL), and TRON (TRX). Notably, USDC is also an ERC-20 utility token, adhering to the standard for creating smart contracts on the Ethereum network.
